Audit Issue

[Mark Goldberg]

My client underreported her income by 20k or so. This will cause her to owe 8k. To try to avoid the 20% accuracy related penalty I gave the auditor a 1040x the moment we met. It turned out that there was an error on the 1040x. However, they are rejecting the 1040x not because of the error but by saying that a 1040x is not fileable once the notice of audit is sent out. They are saying the account is like suspended and can't be amended. Has anyone delt with this issue?
Mark Goldberg

[jainen]

no statutory authority

There is no statutory authority at all for amended returns. 1040X is strictly an administrative convenience, and the IRS is completely free to reject it with or without a reason. There is no appeal. IRS wants to conduct an audit and you should assist your client on that level.

[jainen]

I disagree

I disagree. Since the purpose of an audit is to determine whether the taxpayer is paying the correct tax, it is perfectly appropriate to make corrections at that time. That is the exact purpose of 1040X, after all, and you should insist that the examiner consider it like any other information in the case.

Hopefully this will make the IRS focus on your admitted errors, instead of whatever else they might come up with. In that sense, a 1040X is the best way to serve your client in the audit process.

[jainen]

just plain stupid

Oh, really--that's just plain stupid. Sure, that gambit might work in some ideal situation, but it's already been tried here and failed. If you keep pushing it, you're just going to make the examiner mad and that's generally not one of the main goals of an audit engagement.

Wait until the issue comes up in due course, then somewhat grudgingly turn over the supporting documents. Make the auditor feel she has discovered your Great Secret and forced you into cooperating.

[jainen]

you lost the audit

If you let the examiner control the interview that way, then she HAS forced you into cooperating! You're supposed to be representing the client in an adversarial process. Do you think that, having scored a point, she will bat her eyes at you and say, "Okay, now it's your turn"? More likely it's, "I'm on a roll here so let's see how far I can go!"

And you know what the client will be thinking. Even though he signed the same thing on the 1040X, he'll still feel you lost the audit.

[jainen]

the client wanted it

Hey, if the client's that dumb then I guess he deserves you. The deal is not supposed to be who wins, but who pays the least amount of tax. If that means you have to swallow your pride and play a little game of footsie with the auditor, then that's how you have to do it. Like a professional. She already signalled that she is bound by her manager's arbitrary guidelines. So give her the paperwork at the right time and let her write it up her way. You will be in actual control of the situation and can stop it right where the client wanted it.

[Black Bart]

Hmmm

And..., uh,..., do you hear these voices often?

[Jiggers]

Don't fool around with the auditor

I have a policy of reviewing all the taxpayer's information BEFORE meeting with the auditor. I play the devil's advocate in verifying all taxpayer information that is requested for the audit. If I discover a mistake that the taxpayer or I made, I tell the auditor during the initial interview. The auditor appreciates the frankness and I have always had a smooth audit after that. By being honest up front, you can get the auditor to accept other issues without further questioning. Sure, your client may owe some taxes, but it may prevent opening other years.

[OldJack]

And..., uh,..., do you hear these voices often?

I totally agree with Jainen.

[geekgirldany]

And..., uh,..., do you hear these voices often?

The voices in my head are not real - But They Have Good Ideas.

[Gretel]

The voices in my head are not real - But They Have Good Ideas.

So you call good ideas "not real"......

[Black Bart]

Well, I'm not necessarily

I totally agree with Jainen.

disagreein' with him, but I assume he's arguing with Mark about style and technique and Mark's comments aren't showin' up on my screen. Are they on yours?

[S T]

Jainen and Old Jack

You both are thinking out loud alot. Good, for us to review and learn from.

Sandy

[jainen]

wi' meself

>>disagreein' with him<<

No need to disagree with me. I was doin' jes' fine, disagreein' wi' meself!

[Black Bart]

Ohhhhhh..........

NOW.........I get it (sorry, I'm a tad slow on the uptake). That's pretty good humor. Do carry on with it (unless the argument's over with).